Monday, July 22, 2024

Uber and Lyft’s broken business model wreaks havoc on society

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What would a small worker safety net look like in the internet-based economy?

It would naturally provide health insurance and a pension scheme, sick leave and workers’ compensation and unemployment benefits. And that would be fair and transferable: a person working part-time for different companies would have solid benefits that would accompany them from job to job.

The good news is that we know how to design this type of safety net. The bad news is that digital platform companies continue to miss opportunities to make it a reality.

Uber and Lyft are well aware of the proposals to create better benefit systems. Following the publication of my book,Raw Deal: How the ‘Uber economy’ and fleeing capitalism are harming American workersin 2015, I met the managers of the two carpooling companies. A central element of the discussions was my proposal for an “individual security account”, aportable safety netfor drivers and for other self-employed workers.

My idea was that every worker would have a mandatory, government-regulated individual security account, and that any company that hired a worker would contribute an amount in proportion to the number of hours worked for that company. The worker would then use these funds to pay for safety net needs such as health care, social security, sick leave, injured workers and unemployment benefits.

Instead of confronting flexibility with safety – by forcing a construction worker to choose between the work they want and the benefits they need – a portable safety net based on this type of ‘bank of hours’ system. Would allow both. (The Screen Actors Guild, the International Union of Service Employees and the Teamsters run all of these types of multi-employer plans). The individual security account, as I envisioned, would fill the void when there is no union to coordinate contributions.

President Barack Obamaapproved my ideain his2016 State of the Union Speech. Forty business and government leaders, including Lyft’s co-founders, signed astatement of principlescalling for a portable safety net. Uber CEO Dara Khosrowshahi also called for the adoption of aportable safety net plan.

But when portable safety net bills were introduced in states, Uber and Lyft, rather than contributing 20% ​​of a worker’s salary (the minimum needed to fund a proper safety net according to federal actuarial tables)contribute 2.5%.

A study found that if their California drivers had been classified as employees rather than contractors for the past five years, Uber and Lyft would have paidover $ 400 millionin the only state unemployment insurance fund. Instead, California taxpayers had to foot the bill for the significant wage and benefit differentials created by these companies.

Without a serious offer from the companies, the California legislature passed AB5, which attempted to address the issue by reclassifying drivers as employees rather than independent contractors. Uber and Lyft refused to enforce the law, and continued Proposition 22 instead.

Why can’t these companies, rich enough to spend hundreds of millions of dollars on a ruinous voting measure, not do better with their workers?

The answer is that Uber and Lyft have huge financial problems. They lose billions of dollars every year. Profit margins are inherently low in the taxi industry and their predatory modelsubsidizes more than half the costof each race in order to reduce competition.

With the passage of Prop 22, companies have now legislated for the existence of another stingy version of a portable safety net, with an attempt to save face at minimum wage. The value of the health benefit of Proposition 22 is estimated to beabout $ 1.20 per hour—Well below the $ 4 to $ 6 hourly value of employee benefits required under federal and state laws.

Proposition 22 also appears to offer drivers a new minimum hourly wage of at least $ 16.80 an hour. But read the fine print: a complex formula will be used in which only “hours engaged” (when the driver has a passenger in the car) will be counted as hours worked when calculating the minimum wage.

A driver, in a 10 hour shift, can only have passengers for five hours. If the driver made $ 100 on that shift, that would only be $ 10 an hour, less than the statutory minimum wage of $ 12 an hour in California. Still, the Prop 22 formula will calculate that salary at $ 20 an hour, meaning companies won’t have any obligation to complete it.

None of Prop 22’s offers come close to what the drivers would receive if the voters rejected the initiative and the drivers remained regular employees rather than independent contractors.

Uber and Lyft CEOs talk about a good game, saying they are “ready to do his part»To help their drivers. But they are hampered by their own unprofitable business model, which has also proven to be bad for many of their drivers, for traffic congestion, for the environment and for transportation. How long can the company afford to allow this business model to continue?

Steven hill is the author of Raw Deal: How the ‘Uber economy’ and fleeing capitalism are harming American workers and Building Social Security Now: How to Guarantee Americans the Retirement They Deserve. He originally wrote this article for Zócalo public square.

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